SHANGHAI, Sept. 25 (SMM) – SHFE 1711 zinc posted a 3-day winning streak as of September 22, up by a total of 4%, due mainly to three reasons.
1. Zinc concentrate supply remains in shortfalls.
SMM survey finds domestic zinc concentrate output increased 0.95% year-on-year to 1.93 million tonnes (zinc content) in H1 2017 because of high zinc price. Domestic zinc mines are still active in producing ores in H2 2017 as zinc price remains high. But some mines shut down due to stricter environmental protection and safety inspections. Domestic zinc concentrate output decreased 5.56% Year-on-year to 1.10 million tonnes (zinc content) in Q3 2017, SMM survey showed. SMM expects domestic zinc concentrate output to be 378,000 tonnes (zinc content) in September, up 1.6% month-on-month, but down 3.9% Year-on-year.
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2. Refined zinc supply fell short of demand.
According to SMM survey, domestic refined zinc output is estimated to be 489,000 tonnes (including secondary zinc) in September, up 4% month-on-month. But this will unlikely offset zinc shortages due to stronger consumption. The average operating rate at die-cast zinc alloy producers, zinc oxide producers and galvanizers is expected to increase 12.6%, 3.6% and 0.2% month-on-month, respectively, to 55.5%, 60.1% and 84.68% in September. So, zinc consumption by downstream producers will add 3% in September.
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3. Zinc inventory in three regions of China fell to 10-year low.
Zinc trading inventory in Shanghai, Tianjin and Guangdong totaled 101,300 tonnes as of September 15, the lowest from February 13, 2008. Downstream buyers will hoard stocks due to the high-demand season for zinc and the upcoming Chinese National Day holiday in early October, leaving total zinc inventory low in the three regions in the near term. This will continue to bolster zinc price.
With regard to zinc prices, SMM expects price to surge in the near term thanks to supply shortages.
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